Raise FDI in defence manufacturing to 49 percent: Assocham

New Delhi, March 29 (IANS) Foreign direct investment (FDI) in defence manufacturing should be raised to 49 percent to enable the acquisition of the latest technologies from abroad, a leading industry chamber says. The FDI cap of 26 percent in the defence production industry “should be increased to 49 percent as this would help in the procurement of latest technologies as per the provisions of the offsets policy”, Associated Chambers of Commerce and Industry of India (Assocham) president Venugopal N. Dhoot said.

His comments came on a paper titled “Indigenisation & Import: Win-Win Situation” that the chamber has submitted to the government.

According to the paper, the Defence Offsets Facilitation Agency (DOFA) that is overseeing the implementation of the offsets policy “needs to be expanded and authorized to involve private sector participation in defence deals, based on feedback from the industry”.

India’s Defence Procurement Policy enunciated in 2006 mandates that 30 percent of all defence deals valued at over Rs.3 billion should be re-invested in the country.

“Since the new Defence Offsets Policy calls for greater private sector participation in defence purchases and procurements, including imports, DOFA is the right body that can have parleys with Indian industry to strengthen and indigenise the defence sector,” says the paper that has been submitted to the government.

DOFA should, therefore, “be empowered to regulate this sector by making suitable recommendations to the highest authorities”, the paper adds.

With India’s arm imports expected to rise to $30 billion by 2012, DOFA and the armed forces, in consultation with India Inc, should conduct negotiations “so that defence imports are done qualitatively at much competitive rates”.

The offsets policy is expected to bring in $9 billion during the 11th Five Year Plan period (2007-12).

“If DOFA is conferred with the powers of a regulator, the FDI (Foreign Direct Investment) element in the defence sector would accelerate,” the paper says.

It states that as India has a large industrial base, “offsets will further develop its technical and manufacturing potential and they will also help to increase investments in domestic research and development.

India is the world’s largest importer of defence equipment, buying over $6 billion worth of military hardware every year. Against this, Saudi Arabia and China - the next two large armament buyers in the developing world - notched up defence deals valued at between just $2-3 billion each in 2006.

Currently about 70 percent of hardware procurement is from foreign sources because the Indian public sector cannot deliver in terms of quality or speed on either research or production.

Only about 30 percent of the orders placed on Indian firms - or 9 percent of the total - goes to the private sector.

The government has set a 70 percent target for procuring its defence requirements from indigenous sources by 2010.